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95 % mortgages – all you need to know

This guide was last updated 27 January 2022

What is a 95% mortgage and why are they so important?

The mortgage world is full of jargon and ‘95%’ is often seen but what does it mean?

If you are looking to buy a property then you cannot borrow the full purchase price from a lender.  This means you need to put down a cash deposit and the minimum lenders can allow is 5%, which means they will lend up to 95% of the purchase price or value of the property – hence 95% mortgage.

They are an extremely important section of the market, since that is what many first time buyers need, and getting that 5% cash deposit together is often the hardest part.

Do you have to put down 5%?

The minimum deposit needed is 5% of the purchase price but if you wish to put down more then you can, as lenders often have cheaper products at lower LTVs (Loan To Values) such as 90%, 80%, and 75%,

Can someone give me the deposit?

Essentially yes, but gifted deposits normally have to be from a close family member or lenders may not accept them.  Most lenders will want to see that the money is indeed a gift and not a loan but a few can look to accept a gifted deposit that does have to be repaid, often when the property is sold in the future.  Such loans will likely have to come from immediate family members.

How long does it take to save a 5% deposit?

How long is a piece of string?  When people have their hearts set on buying a home then they tend to save as fast as they can.  The length of time that takes depends on how much money they can save each month and what size deposit they need to get together.  Don’t forget you will need extra money for things like arrangement fees, solicitors, valuation fees, and moving costs – plus some money to furnish your new home or maybe to do some work to it if necessary.

Sometimes, usually for a new build property, the developer will offer to pay the 5% deposit needed.  This can be very a very attractive offer but remember that rarely do developers give anything for free and therefore the overall price will likely be higher to take the incentive into account.  Lenders will generally not accept ‘builder deposits’ of more than 5% for this very reason.

What do I need to do to be accepted for a 95% mortgage?

Lenders use a profiling system called a ‘credit score’ to determine if your application for a mortgage is successful.  It is a points-based system that takes into account all the answers to their questions, the information held on your credit file, and your financial profile for income and expenditures.  Here are some key points to help you stand the best chance of being accepted.  95% mortgages are considered to be relatively high-risk loans, so the credit score to pass an application process is quite stringent.

  1. Electoral roll history – make sure you have a complete electoral roll history for at least three years.  This is so the lender can find out as much as they can about you to make sure that lending you a large amount of money is a good decision both for them and for you.
  2. Credit cards and loans – make sure that every payment for every credit agreement, card, personal loan, car finance and even mobile phone contracts are paid in full and on time.  If lenders see missed or even late payments for smaller contracts then they will think twice about agreeing to lend you a large sum with bigger monthly payments.
  3. Amount of available credit actually being used – lenders like to see that you have credit available but that you don’t max everything out.  They look at something they call ‘overall indebtedness’ where they consider not only how much you have outstanding but also compare that to how much you have available in credit limits.
  4. Outgoings – it makes sense that if you are saving to buy a property then you will want to stop anything unnecessary.  Lenders do look at spending patterns so if you have subscriptions and memberships you do not regularly use then stopping them will save you more money and increase your mortgage payment affordability. Online gambling is something you should stop!
  5. New loans – lenders can re-run credit searches on applicants at any time during the application process.  If you apply for a mortgage and then take out a new loan (maybe for a car) before the mortgage starts then the lender can reduce the amount you can borrow leaving you with a shortfall.  So before you apply make sure that you don’t have any plans to take out finance in the immediate future. If you do, please let us know and we can work with you and the lender to make sure the overall deal still works.

You have access to your credit file compiled by credit reference agencies such as Experian and Equifax will have all this information.  You can access this information at any time by applying to them.  Sometimes you can sign up for their regular update service or simply pay a small one-off fee for a one-off credit report to be sent to you.  These credit reports often contain a score.  That score is not the same as the one lenders perform when you apply to them but is a good indication of the likelihood of your success when you do apply.

Which is the best 95% mortgage?

There are many 95% products out there with variable, tracker and fixed rates for 2/3/5 years and longer, with cashbacks, with free valuations and some with ‘green’ credentials. It can be a bit bewildering trying to work out which is actually best.  Talking to a professional mortgage broker will really help.  A broker will not only explain everything to you but also talk about what you want and need from a mortgage.  They will take all the costs into account plus the service you will need from the lender and what flexibility you might want before looking at all the products available at the time.  Then they will make a recommendation to you explaining everything you need to know.  The broker will then help you every step of the way through the process until you get the keys to your new home and beyond.  Some of the mortgages your broker will consider include longer overall terms and longer fixed rates – up to 40 years.  These can often allow you to borrow a significantly higher amount that might help you get the home you really want.  To talk to a broker please call us on 020 7220 5110 or click here.

Further topics you may be interested in: –

Help to Buy – this is a government-backed scheme for first-time buyers of new build properties where you put down a 5% deposit and they add up to a 20% deposit but own that proportion of the property.  Click here for a guide to Help to Buy.

Shared Equity and Shared Ownership – these are often run by housing associations where you buy a smaller proportion of the property you then live in and either pay rent on the part still owned by the association or they own the proportion

Guarantor Mortgages – this is where you cannot borrow the amount of money you need but you have a close family member who agrees to come on the mortgage with you so their income can be taken into account as well.

Family Mortgages – a few lenders have been able to create mortgages where a family member can either deposit money with them to act as a kind of holding deposit – usually a minimum of 10% of the purchase price.  That money is held in a separate savings account for at least three years and then it may be returned if certain conditions are met.  The advantage of these schemes is that sometimes it means no traditional deposit is required – so you might be able to borrow 100%.